Cardinal Company is considering a five-year project requiring a $2,800,000 investment in equipment with a useful life of five years and no salvage value. The companys discount rate is 14%. The project would provide net operating income in each of five years as follows:

Sales		$ 2,845,000
Variable expenses		1,109,000
Contribution margin		1,736,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs	$ 799,000
Depreciation	560,000
Total fixed expenses		1,359,000
Net operating income		$ 377,000

Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using table.

Foundational 14-5 (Algo)

5. What is the profitability index for this project?